Review the existing literature to critically examine the relative information content of the income...

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Review the existing literature to critically examine the relative information content of the income statement and the statement of cash flows. Why do investors find both income statement and statement of cash flows useful?  Part B Download the annual financial reports of BHP Ltd, Santos Ltd, and Funtastic Ltd for the year 2019, 2018 and 2017. Examine the consolidated Cash Flow Statements for each companies across three years. Answer the following questions about each of the three cash-flow statements. 1. For each companies [except mentioned otherwise as in c), g) and i) below], across three years on the Statement of Cash Flows discuss: a) What are the major sources of cash for each firm? What are the major uses of cash for each firm? b) What was the trend in cash flow from (continuing) operations for each firm? c) Compare and contrast the cash flow from operations with the net profit after tax in income statement. Explain in detail the major reasons for the difference between these two figures. (Answer this question using only the Cash flow statement for BHP Limited). d) Was the firm able to generate enough cash from operations to pay for all of its capital expenditures? e) Did the cash flow from operations cover the dividend payment made by the firm (if any)? f) If the firm has generated excess cash from operations, how did the firm invest the excess cash? If not, what were the sources of cash the firm used to pay for the capital expenditures and/or dividends? g) Did the firm use the working capital (current asset and current liability) accounts other than cash and cash equivalents as sources of cash, or uses of cash? (Answer this question using only the Cash flow statement for BHP Limited). h) What other major items affected cash flows for each firm? i) What was the trend in capital expenditures for each firm? j) What was the trend in dividends (if any) for each firm? k) What was the trend in net borrowing (proceeds from borrowing less payments of short- and long-term debt) for each firm? l) What was the trend in working capital accounts? (Answer this question using only the Cash flow statement for BHP Limited). Page 3 of 11 HI5020 Corporate Accounting Individual Assignment 2 2020 2. Critically evaluate the financial strength of each of the three companies based on the evidence presented in the Statement of Cash Flows, and your answers in (1) above. 3. If you are asked to evaluate these three companies for lending purposes, which of the three companies you will select for lending? Explain Why.

Sweety · Accepted Answer

LIST OF CONTENT
	PARTICULARS
	PAGE NO.
	CONCUSION
	2
	Part A
	3
	Part B
	
	1)
	4 TO 10
	2)
	11 TO 12
	3)
	12
	Conclusion
	13
INTRODUCTION
The given report highlights the result of the analysis and evaluation done. In this annual statement of three companies (more specifically cash flow statement) are analyzed. The companies are
· BHP Ltd-It is a world leading Resource Company which is engaged in extraction and processing of minerals, oil and gas. The two parent company of BHP ltd is BHP group Ltd and BHP Group Plc. It is managed and operated by a unified board and management 
· Funtastic Ltd-it is a public company that is engaged in development and distribution of toys, confectionery, and sporting and lifestyle product. The product of Funtastic ltd is grouped into toys, plush, stem education, preschool, confectionery, home wares, outdoors and tech.
· Santos Ltd- It is engaged in production and supply of gas to all Australian states and territories, ethane to Sydney, and oil and liquids to domestic and international customers. It also participates in on and off shore oil and gas exploration and production. It is also engaged in production, treatment and marketing of coal seam gas (CSG), liquefied petroleum gas (LPG), crude oil, condensate, naphtha and liquid petroleum gas.
 Requirements of the question are cited in this report. Each company is evaluated in terms of its operating investing and financing activities and the result and outcome on the basis of the evaluation done is mentioned in this report. All the requirement of the question is mentioned in the report and the result of evaluation done is also mentioned. Along with the solution submitted there is a PPT attached with this report that shows the graphical representation of cash flow from operating, investing and financing activities. Also part 4 of the question requires an evaluation to be done for lending purpose, for evaluating the same  the criteria or factors are to be also considered. 
PART A
INCOME STATEMENT
Income statements are financial statements that summarize revenue and expenses and shows profit and loss over a given period of time. It is known as profit & loss statement. Use of income statement to investor is as follows:
· The income statement shows an investor the profit/earnings, the sale, the cost of goods sold, other income and a breakdown of major expenses for business. 
· It shows performance of the business and the profit earned. This is one of the most important uses of income statement to investor.
· The Income statement assists the investor in evaluation of the past performance of the business.
· It provides assistance in predicting future performance of the business.
· It is a good source of analysis for the investors who are willing their stake in the company. It serves a good source of fundamental analysis. This analysis helps the investor in making economic decision with respect to whether they should invest their stake in company or not.
CASH FLOW STATEMENT
Cash flow statement is like a company checkbook register that shows cash inflows and cash outflows associated with the company. It measure movement of actual cash from three major activities which are operating activities, investing activities and financing activities. Use of cash flow statement to the investor is as follows:
· Information of historic cash flow assists the investor in projection of future cash flow on which they can base their investment decision.
· Change in the balance sheet can also be traced and it also helps in analyzing operating, investing and financing activities.
·  Liquidity and solvency of the firm is vital for survival and growth of any organization, cash flow statement provides an insight about solvency and liquidity of the firm.
· Information with respect to cash generating abilities of the entity’s core activities can be provided with the help of cash flow.
· Financial position of an entity during a period of time can be depicted with the help of cash flow statement.
· Investor tends to make a comparison of cash flow statement of different companies for determining the quality of their earnings. In a way it assists them in making right decision.
· If a company has long term debt obligation, possibility of repayment can be determined with the help of cash flow statements.
PART B
Answer to question No. 1
Santos ltd –
a) Major source of cash of  Santos ltd are :
· Receipt from customer
· Pipeline tariffs and other receipt
· Interest received
· Dividend received  
              Major uses of cash for each firm are:
· Payment to suppliers and employees
· Borrowing cost paid
· Acquisition of subsidiary
· Repayment of borrowings
· Acquisition of assets
b) The trend in cash flow is explained as under with respect to Santos ltd are explained as under;
· Receipt from customer is showing a rising trend. On the basis of year to year comparison .In 2018 it has increased by 16% in 2019 it has increased by 14%. Receipt from customer is the basic source of cash receipt.
· Other receipts like interest received, dividends received and pipelines and tariffs and other receipt has also shown a rising trend. However regarding dividend received in 2018 the amount received has declined as compared to 2017 but in 2019 it again increased.
· In case of operating activities the major source for which cash is used is payment to suppliers and employees. 
· Restoration expenditure in 2019 has decreased as compared to2018.
c) Not required to be done for this company
d)  
	PARTICULARS
	2019
	2018
	2017
	Cash Flow From Operation
	2046
	1578
	1248
	Capital expenditure 
	1059
	2519
	683
                
             From the data above it is clear that in 2019 and 2017 the cash flow from operation generated by the firm is sufficient to pay for all the capital expenditure. However in year 2018 capital expenditure incurred is greater than the cash flow from operation.

Review the existing literature to critically examine the relative information content of the income statement and the statement of cash flows. Why do investors find both income statement and statement...

Answer To: Review the existing literature to critically examine the relative information content of the income...

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